Open Banking is one of the most exciting legislative changes for the payments industry in recent times. It will foster transparency and innovation in financial services, encourage a level playing field between providers and – more importantly – give users the reins to control their data.

With barriers to managing data removed, customers are not only given more choice, but will be able to compare financial products with more ease than ever before. All of this will help bring about a long overdue shift in financial services where the industry is more attuned to the customer’s changing needs.

The shift in power to the user from the institution will be based on data enabling greater understanding of their personal circumstances that in turn leads to tailored products and experience. We consider that Open Banking will bring added value to two distinct areas: firstly, enabling people to make the most of their money, and secondly, empowering people to grow their money over time.

Making the most of money

Today, the majority of people pay too much for their overdraft, credit card, utilities or insurance bill. Too often, when it comes to switching, the individual does not get the best deal when shopping around for a new product or service because they revert to financial institutions where they already have a relationship. It’s akin to the adage that we’re more loyal to our bank than we are to our partner.

This decision would be fine if these institutions took the lifetime of data they have on their customers and used it to help each individual find the best products for their circumstances. Unfortunately they don’t. Instead, providers are geared to extract value from the individual, irrespective of what may make the most sense for their circumstances.

With Open Banking, this will cease to be the case. This shift in data management will make a customer’s data transparent and actionable. It means the banks’ whole approach to selling financial services – not to mention the way they use data – will be forced to change to prioritise the interests of the consumer, rather than their balance sheet.

As an example, Open Banking will bring to an end the days of banks charging you an astronomical (but hidden) 15% fee for transferring money abroad. The world of money is moving from being led by providers to being driven by consumers who can take informed decisions based on fully understanding their circumstances, products available and associated fees rather than being taken down blind alleys of expense. In real terms, it will deliver savings direct to consumers.

Growing your money

There are two ways in which Open Banking will improve people’s ability to invest and secure returns on their money. When it comes to saving, banks typically (aside from almost negligible interest rates) do not offer any real assistance to consumers. By way of contrast, under Open Banking, we will move to a holistic view of our finances beyond traditional banking. New services will allow customers to manage all of their finances in one place and, by applying AI and technology, automate active saving.

For example, Plum gives users visibility on their short-term spending and month-to-month outgoings providing automatic alerts to where money can be saved then moved into higher interest savings accounts. It removes the hassle of budget tracking and, by using automation to analyse daily spending patterns, reveals how to grow your money and, once a step is approved by the user, saves the money in the best way.

Beyond day-to-day savings, Open Banking will enable people to access sophisticated investment products more easily with smaller amounts of money. Instead of investments being considered only for the wealthy, with Open Banking, people can save into higher interest investments from as a little £10. It will drive innovation that will bring to an end the situation of banks ignoring smaller investors and providing a greater range of options for customers at all wealth bands. If they fail to do this, customers will move to the raft of new providers that allow them to effectively grow their savings.

What does this mean for the banking sector?

At its heart, Open Banking will cede power to the consumers by enabling products, service and providers to be easily compared against the exact needs and aspirations of the individual. The consumer will be able to assess the value they get from their various financial providers and shift more easily should they need to.

The ability to compare providers in such a way will lead to an intensification of competition in the sector – coupled with the fact that Open Banking will make it easier to use multiple banks and services harmoniously, which will result in people using different products from different providers based on best fit. It will reset the relationship that will have to be considered in providers’ future strategy – whether to be a good all-rounder or specialised in a particular category.

Into the future, it will be necessary for every provider to put their customers’ wants and needs first in order to stay competitive. In many ways, this has been brought to life by the fledgling fintech industry where customer experience is the sectors’ raison d’être. The dawn of personal finances that are working for you, rather than against you, has come.